VOV.VN - Major original equipment manufacturers and contract assemblers contemplate moving production facilities out of China to lower-cost production bases in Southeast Asian countries, including Vietnam, to avoid high US tariffs on exports, a research entity from Fitch Group has stated.

Illustrative photo (Source: ictnews.vn)

Fitch Solutions, a macro-research arm of the Fitch Group, claimed that the slight shift in information technology and consumer electronics supply chains was caused by the US-China trade war.

The research entity quoted statistics as showing that Vietnam in particular has emerged as a beneficiary of the trade war. In the first quarter of 2019, the Southeast Asian country accounted for 8.8 per cent of all US electronics imports, up from 2.8 per cent in the previous quarter. This shows that manufacturing lines in Vietnam are increasingly meeting the US’s electronics demands.

However, Fitch Solutions is cautious of the first-quarter spike while noting a substantial proportion of the additional exports can be attributed to Chinese electronics which were routed through Vietnam, and re-labelled as Vietnamese-made ones.

Addressing a meeting of the National Steering Committee on ASEAN Single Window, National Single Window, and Trade Facilitation in Hanoi last week, Mai Xuan Thanh, deputy head of the General Department of Vietnam Customs, admitted that common frauds committed by local businesses are to assemble imported components into final products and then relabel them as made-in-Vietnam items for domestic consumption and export.

“We will co-ordinate with competent agencies to verify such frauds and submit a relevant report to the Prime Minister in the time ahead,” Thanh added.

Earlier, local media reported that the Vietnamese authorities will begin clamping down on tariff-evading Chinese goods being passed off as made in Vietnam. This move came after many Chinese electronics reportedly had their ‘made-in-China’ labels removed, processed lightly, and re-exported to their destination markets. In fact, the country has yet to set forth clear rules on country-of-origin labelling.

This has resulted in the rise in US-bound electronics shipments as there has not been a significant shift in capacity to Vietnam since the onset of the trade war, Fitch Solutions analysts said.

The announcements of major original equipment manufacturers (OEMs) and contract manufacturers imply that while Vietnam, Indonesia, and Thailand are emerging as favourable destinations for assembly of electronics, plans are very much still in the pipeline.

Similarly, contract manufacturers namely Foxconn and Pegatron are contemplating shifting more production out of China and into emerging Southeast Asia, although these plans are also in the planning phase, and no major capacity shift has yet occurred.

Despite the slow movement of vendors in shifting their production bases elsewhere, the search for lower-cost production facilities outside of China is thought as a long-term trend.

The trade war has simply accelerated an ongoing process by which lower-end manufacturing capacity is moving out of China, due to both the increased wages commanded by Chinese workers and the Chinese government policy to move the economy up the value chain.

Meanwhile, Vietnam is an important production base for major electronics vendor Samsung, which has made bold investments in the country since 2007. Its entrance into Vietnam also preceded considerable technology transfers to local suppliers.

In 2017, Samsung reportedly procured components from 29 Vietnamese companies for its production needs, up from four seen in the four previous year.

Matching trends in electronics and machinery exports and import growth reflect Vietnam’s intermediate position in the global electronics supply chain. Electronics and machinery accounted for 40 per cent of both Vietnam’s imports and exports in 2018, suggesting the importance of manufacturing to the Vietnamese economy.

The country’s high exports as a major share of GDP, however, means that possible tariffs levied by the US on Vietnamese exports would weigh disproportionately on the economy.

The US administration has already sought to implement tariffs of over 400 per cent on the Republic of Korea and Taiwan (China) - made steel reexported through Vietnam. Therefore, tariffs impacting Vietnamese goods such as electronics would have detrimental effects on the domestic manufacturing sector.